Investors are right to fume over BAT chief’s pay rise demands

It’s hard not to admire Nicandro Durante, the boss of British American Tobacco (BAT), and his attempts to convince investors to award him a bumper pay rise. It takes real self-belief when you took home just over £8m last year to tell investors that you deserve another £2m.

Most people would agree that Durante’s current deal is already huge, yet he clearly thinks he’s worth more, much more in fact.

As we report, the FTSE 100 maker of Dunhill and Pall Mall cigarettes has asked investors to approve a 20pc pay rise on a figure that is already stratospheric compared with the average pay package – almost 300 times more than the £27,195 median pay for a full-time employee in 2014, to be precise.

That puts Durante among the top earners in corporate Britain – FTSE 100 bosses earned on average £5m in 2014, 183 times more than a full-time worker, according to recent figures.

The BAT chief’s so-called long-term incentive plan is limited to four times his salary

Jack Lew

But what really marks the 59-year- old out for sheer chutzpah is that it is only a few months since shareholders roundly rejected a similar but more generous proposal than the current one on the table.

The most eye-watering aspect of BAT’s original scheme was for Durante to receive a share award worth six times his £1.2m salary, a request that one top investor branded “ludicrous”.

Yet, Durante clearly isn’t satisfied, and is determined to push through a better deal because the terms of the current one are only slightly more modest this time around.

This time, BAT has asked investors to approve a long-term share award that would be worth up to as five times salary and a bonus valued at as much as two-and-a-half times his base pay. The total package would be worth almost £10m.

At present, the BAT chief’s so-called long-term incentive plan (LTIP) is limited to four times his salary, and his bonus is capped at two times, which saw him earn a total of £8m last year.

One wonders why this isn’t enough but there seems to be something quite simple at the heart of these demands – vanity and pride.

According to investors, Durante is frustrated that despite earning big bucks, he isn’t in the super-league of FTSE earners.

BAT argues that his pay should be comparable to the likes of Martin Sorrell at WPP, the world’s biggest ad agency, Ben Van Beurden at Shell, and Rakesh Kapoor at Reckitt Benckiser, the consumer goods giant, three of the best paid executives in Britain.

Sorrell earned £43m in 2014, making him once again the UK’s most handsomely remunerated boss by a long shot. Van Beurden made £19m, putting him in second place, while Kapoor was paid £11.2m, putting him comfortably in the top 10.

All these bosses have, at some point, faced significant shareholder opposition to their pay deals, but each time the response from the companies is largely the same: performance has been strong and better than rivals’.

On that basis, then, Durante perhaps has a right to feel aggrieved at being outside of this elite club of earners.

In 2014, research from Patterson Associates, a remuneration advisory firm, revealed that Durante was the second-best value-for-money chief executive in the FTSE 100.

Over a four-year period, the BAT boss returned £3,737 to shareholders for every pound he received in compensation. Only Van Beurden could boast more impressive returns.

Yet despite Durante’s performance stats, investors remain unconvinced, arguing that BAT isn’t as complicated a company as WPP, Shell or even Reckitt Benckiser. Selling cigarettes is “relatively simple”, said one.

The overriding issue here, though, appears not to be how complicated BAT’s business model is or even that it is seeking an improved package, but that the company has misread the mood of shareholders and pushed for too much.

Here, blame must rest squarely with Kieran Poynter, BAT’s remuneration committee chairman, who has been in the post only since last May but has managed to anger investors twice in that time.

It is his job to provide feedback on such proposals and adjust accordingly, but in this case, it appears that BAT’s demands have not been scaled back to an appropriate level.

It won’t have helped that BAT has form on this issue, having angered investors back in 2012 when Durante first took charge.

On that occasion, the remuneration committee increased the amount the chief executive could earn as a long-term reward from three times his £1m salary to four times, but crucially without changing performance targets.

Back then, the committee was led by Anthony Ruys, the former boss of Heineken, but Poynter should have been aware of the fallout.

Although shareholder anger around executive pay has clearly dissipated since the volatile days of 2012’s Shareholder Spring, BAT has clearly failed to recognise that it is still clearly a sensitive subject.

So if this eye-watering proposal gets stubbed out, it will be hard to feel any sympathy in the face of its bungled negotiations.